Gloom all round for manufacturing as costs spiral

Falling orders and rising costs threaten could cause up to 45,000 jobs to be lost in Britain's manufacturing sector in the first half of this year, according to the CBI's closely-followed quarterly Industrial Trends Survey.

Manufacturing orders have fallen sharply since January with firms reporting the weakest quarterly performance since July 2003, the survey found.

Orders for consumer goods also declined significantly, while capital goods orders were unchanged.

Compounding the gloom, costs and prices increased at their fastest rate for almost 10 years, though with costs clearly outstripping prices. Falling orders and output and rising costs and prices have also led to the third successive deterioration in confidence.

Spiralling oil prices were partly to blame for this, the CBI said, with prices averaging 30.5 per cent more in the April survey period than in January – some 67 per cent higher than this time last year. The cost of other raw materials such as metals is also much higher than a year ago.

Export orders declined at the fastest rate in 18 months and firms reported the first decline in output for six quarters. January's expectations of modest growth appear to have been overtaken by an appreciation in the sterling/dollar exchange rate and disappointing growth in Europe.

Companies experiencing a decline in orders outnumbered those seeing a rise by 18 per cent, the survey added, the worst performance since July 2003 and a four per cent decrease since January.

Ian McCafferty, CBI Chief Economic Adviser, said: "This latest set-back for manufacturing can be attributed to a number of factors. Probably the most significant is the hike in oil prices, which has helped to push up costs at the fastest rate for nearly ten years, while also constraining demand for manufactured goods in key overseas markets such as the EU.

"Exporters could also blame a modest appreciation in sterling for the decline in orders at the fastest rate in 18 months. However, the decline in domestic orders for consumer goods highlights the more difficult conditions in the home market, too."

The gloomy outlook will cost manufacturing some 22,000 jobs over the next three months, the CBI said, on top of the 21,000 jobs that have already been lost this year.

Sir Digby Jones, CBI Director-General, said: "This is further evidence that any post-election tax raid on business would hit a manufacturing sector already in a fragile position. We will resist any such move fiercely.

"The Bank of England must continue to ensure that inflationary pressures remain under control, but they must also avoid a premature rise in interest rates."